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China speeds up infrastructure funding, should support steel demand

China has accelerated the issuance of local government special bonds since the start of January, in an effort to speed up infrastructure construction to offset downward pressure on China's economic growth.

Steel demand generated from the infrastructure sector is expected to pick up after China's Lunar New Year holidays over January 24-30, with stronger momentum than in early 2019.

As of January 14, China has issued Yuan 334.465 billion ($48.7 billion) of local government special bonds, compared with Yuan 141.2 billion issued in the whole month of January 2019, according to state-run media Securities Daily. There is at least Yuan 368.425 billion more local government special bonds in the pipeline for issuance within January.

Moreover, all the special bonds issued and planned for January 2020 are for infrastructure projects, such as transportation, utility and environmental protection. None of the funds are earmarked for land reserves or shanty town renovation. Of the Yuan 141.2 billion special bonds issued in January last year, Yuan 107.1 billion found its way into the property sector through land reserve and shanty town renovation, leaving only around Yuan 34.1 billion going into infrastructure construction.

Although other infrastructure funding channels, such as entrusted loans, trust loans and undiscounted bankers' acceptances, will remained subdued under strict supervision of the central government, the special bonds spent in infrastructure in January will increase exponentially year on year. In tandem, some steel traders were optimistic about steel demand from the construction sector after Lunar New Year.

However, some market participants warned that steel mills were also optimistic about steel demand in spring, which could support stronger than expected steel production and offset any upward momentum from the demand side.

New home prices rose in 50 of the 70 Chinese cities monitored by the National Bureau of Statistics in December. Prices fell in 16 cities and were unchanged in four. Prices had risen from the previous month, demonstrating that purchasing ability is robust.

Spot price assessments for rebar in the Beijing market reached Yuan 3,685/mt ($535/mt) on January 15, up 1% compared with a month ago, S&P Global Platts data showed.

Source: S&P Platts

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